Decrypting the crypto

"Cryptocurrency has been at times dubbed as a waste of energy and effort, and by others as the future of money. What to believe in and what to ignore, is the paradox for an entrepreneur or potential investor"

The cryptocurrency jargon has finally seeped into our households courtesy of androids and iOS, phones and tabs. As COVID-19 sat in, the world lost its appetite to invest in commodities, digital currency was no exception. In our ongoing economic crises, it is imperative to develop an understanding of the same. Take it as a disclaimer that this write-up is just meant to introduce the basic concept and by no means is aimed at instilling fear of missing out, in who so ever reads on, but can help us make a better sense of this phenomenon.

So for starters, crypto currency’s integral limit has been defined as a “no brainer tending to pure gainer”. It has been at times dubbed as a waste of energy, effort, time, and savings, and by others as the future of money. What to believe in and what to ignore, is the paradox for an entrepreneur or potential investor. It will be walking off the cliff if the investment decisions taken are not informed ones. So at least let us say hello to cryptocurrency and get to know it a bit upfront. Not a big deal, it is simply digital currency nothing physical about it; it is not tied to any underlying asset – no bills and stuff. Yes, what makes it further unusual is its volatility, which can bring in rags from riches and vice versa in no time. I will exemplify it later, so as of now we try to understand the basic question; digital currency – why and how?

The conventional contemporary currencies suffer on two accounts, they require centralized control to regulate their valuation, production, and authenticity, which can only be exercised by governments, two, they can be subject to fraudulent production. Digital currency like Bitcoin provides solutions to the above-mentioned issues with conventional currencies. At the heart of cryptocurrency, is cryptography; the method to reveal or disguise information, thus making digital currency transactions secure. The spine for digital currencies is provided by blockchain technology, which put in simpler terms is a distributed database residing on peers (referred as to nodes), providing for accounts, balances, and transactions. Cryptocurrencies were designed to be directly transacted between two persons requiring no intermediary like banks or authorizations from the government.

Each transaction initiated by the payee is authorized through a key known to him or her only. The digital currency amount to be transacted is cross-checked by the nodes across its databases and if at least 51% of the nodes agree, the transaction is delivered to the wallet of the recipient, who had earlier sent his Bitcoin address, a “hashed public key”; a combo of alphanumeric. Remember, it is not the case as we do online banking, in which databases maintained by the bank servers are cross-checked. In simpler terms, the difference is between being centralized in the case of banks and decentralization or distributed in digital currency transactions.

It is a whole bizarre bazaar out there if you walk out on the internet to buy some digital currency. Bitcoin was the first of the digital currencies to be introduced in 2009 and the same was warmly welcomed by gamblers and money launderers only to find its way into Wall Street and Silicon Valley, later. It was followed up by the likes of Ethereum, Litecoin, etc. As of Feb 2022, there are 10,000 digital currencies up for buying and transacting online. They come as coins and tokens (security and utility tokens). There are online companies from where digital currencies can be purchased. Coinbase, Coinbase Pro, and Binance are a few of the reputable cryptocurrency exchanges to buy from. They offer varied fee structures to the buyer.

Now, the salient point of the ongoing debate on the pros and cons of digital currency. The Pro(er)s advocacy is based on motivational reasoning as their money is on the line. The more they can convince, the more the rise in valuation of the coin they have invested in. The claim is that 64-digit codes being generated through blockchain technology are inherently secure being distributed on thousands of nodes. The Con(er)s quote in contrast the kind of electric energy only the Bitcoin network consisting of thousands of computers consumes to keep itself up and running. It equals the total power requirements of Argentina (environmental approach). The absence of centralized control for authentication and production, as already highlighted earlier is projected as a big plus whereas the same is negated by the opposition based on digital currency’s susceptibility to hacking and volatility. It also poses serious challenges to governments in controlling money laundering and tax evasions.

Pros and cons notwithstanding, El Salvador declared it a legal tender a couple of years back. Now, what digital or crypto currencies hold for Pakistan as prospects, can be analyzed based on the case study of the hyper-inflated economy of Venezuela. The use of cryptocurrency there has gone through the roof as inflation soared to a stifling 6500%, smoking up the savings of a common man in the air. You name a commodity and those people are buying through cryptocurrencies by paying in their local Bolivars. Our ever-deepening economic crises call out experts to analyze the Venezuelan model for suggesting ways and means to inject cryptocurrency into the system on the back of which many Venezuelan businesses are riding out to the promised land of survival. It may be a preparation for our worst-case scenario. Keep the minds open but do not let the brains fall out. Decrypt the crypto, now.